Investor Overconfidence and Transaction Losses: Behavioral Challenges for Sustainable Islamic Capital Markets in Indonesia
DOI:
https://doi.org/10.54471/iqtishoduna.v15i1.3155Keywords:
overconfidence, price prediction error, Sharia Capital Market, behavioral finance, self-deceptionAbstract
High overconfidence among investors, reflected in a high degree of calculation error, can distort price perceptions and lead to suboptimal investment decisions in the Sharia capital market. This study aims to examine the relationship between investor overconfidence and the accuracy of stock price predictions in the Indonesian Sharia capital market, positioning itself within behavioral finance by addressing the gap in experimental evidence in Islamic contexts. The research employs a laboratory experimental approach by observing investor reactions after receiving relevant information, with participants classified into three groups based on their level of self-confidence. The experimental design includes two market conditions: markets exposed to negative information and markets without information. The findings reveal that highly overconfident investors tend to overestimate the accuracy of their knowledge, resulting in higher prediction values and greater pricing errors compared to less overconfident investors, indicating a tendency toward self-deception. However, the results also show that higher prediction errors do not always translate into transaction losses. These findings suggest the need to strengthen Islamic investor education to encourage more rational and informed decision-making in Sharia capital markets.
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